Interesting things going on in the world of gloom, doom, and despair recently.
The FT is running an article where the US secretary of agriculture basically warns that there is food crunch ahead:
The US agriculture secretary has warned that unless countries take immediate steps to sharply boost agricultural productivity and food output and reduce hunger, the world risks fresh social instability.
“This is not just about food security, this is about national security, it is about environmental security,” he said on the sidelines of the first meeting of the Group of Eight ministers of agriculture.
Lots of talk about the US Treasury ‘stress tests’ for the banks. The worst case scenario that they are using is predicated on the headline unemployment number hitting 10.4% by the end of next year (it’s currently 8.5%, and rising fast… it’ll probably hit 10% in a couple of month, maximum) and a decline in house prices of 29% from the start of this year, and over a similar period… they are currently down 22%, and, you guessed it, falling rapidly.
The other issue is that while stress tests might have seemed like a good idea at the time, now that the results have to be released, there are all sorts of dilemmas. If all the banks pass with flying colours were the tests rigged? If some of the banks fail, and are sent off to secure new capital over the next six months, what is going to happen to their shares? Will it provoke runs on the failing banks? Perhaps the results could be kept secret.. that always inspires confidence.
This is looking like a slightly different take on the old, ‘good bank / bad bank’ discussion. The outcome doesn’t stand much chance of being much different… the people will end up assuming the position (all of the risk) while the banks try to hide their losses. What a mess.
This piece by Cynicus Economicus is really worth reading (as are the comments). He makes a pretty good case for believing that the anglo-saxon system of capitalism has run it’s course, and that we are now going to live through a very different (and declining) part of the cycle. I’ve always been intrigued by the idea that societies develop in cycles, going from youthful exuberance, middle aged stability, to staid old age. There seem to be many examples of this… and i’m sure a lot has been written about it. I’m already reading too much.
The other aspect of that piece, that is far more worrying, is the idea that the Chinese have twigged to the idea that Fed printing money <cough> embarking on quantitative easing, is a de facto act of default on the debt. There is evidence out there that China is positioning itself to survive this figurative middle finger to the developing world.
Graphs like that (from here) make it clear that the Chinese are very aware of the “dollar trap” and, if the reports of them moving to buying up natural resources, precious metals, etc. are to be believed, actively working to insulate themselves from the US attempting to inflate themselves out of debt.
It’s a disturbing prospect on many levels. Defaulting on debts denominated in the worlds reserve currency… seems like a road to terrible instability, economic warfare, and eventually, outright conflict. It’s always said that war is only way out of depression, and it’s easy to see why. Personally, i’m not convinced that it’s inevitable… an odd moment of optimism?
On another positive note, the sheer size of China’s dollar denominated reserves mean that they aren’t going to unduly rock the boat. They’ll be trying to beat an orderly retreat, reallocating into other currencies, and assets. This movement is going to take time. Meaning that those of us with exposure to the dollar might see a period of relative stability until the endgame (a new world reserve currency, that greatly reduces America’s influence) becomes obvious / inevitable.
It’s looks to me that China has their eyes on the prize and is very much playing to win… will be interesting to see if Japan choses to go ‘down with the ship’ or makes like a rat. There is a lot of historic baggage to be lugged around, but surely pragmatism will force Japan to reconsider it’s current position as the outsider in Asia.